2 Reasons the Tech Bubble Could Bust Sooner than You Think

From one perspective, it was yet another great week for the tech industry. Gravity-defying mega-unicorn Airbnb recently closed a $100 million fund-raising round at a valuation of nearly $26 billion. Ola, which is generally known as the Uber of India, raised $500 million in Series F funding from investors such as Didi Kuaidi, itself known as the Uber of China. (Uber is now so large, by the way, that it is competing with both of these companies in India and China, respectively.)

Square, the mobile-payments company that was supposed to get gutted during its debut on the New York Stock Exchange, popped 45 percent on its first day. Match Group, Tinder's parent company, even ascended on the public markets despite the fact that Tinder’s C.E.O. told a reporter that the word for intellectual attraction is “sodomy.”

From another perspective, however, things are beginning to look a little scary. The private markets have become so frothy, many have contended, partly because the Federal Reserve has pumped tons of cash into the system for years via multiple rounds of quantitative easing and low interest rates. Now, that gilded age appears to be ending. Nearly all signs—including the minutes from a recent Fed meeting—suggest that central bank officials will raise interest rates next month. This measure suggests, at last, that the U.S. economy has returned to self-sustainable efficiency some seven years after the collapse of Lehman Brothers. But it will also make borrowing more onerous, and risk, well, more risky. Those willing to take a flier on a mobile food-delivery company might think twice.

Confounding this reality is a second, ominous truth. The first dot-com bubble was funded, in part, by private speculators hoping to make easy money in the stock market. This one, however, has been assisted by the most potent forces in the murkier regions of the private global economy—private-equity firms, mutual funds, major investors, and sovereign wealth funds the world over, particularly in China. For the last several years, after all, China's economy has been growing at a surreal clip. In its best years, growth neared 10 percent.

Now, as Bloomberg recently reported, the financial masters of the universe are scared shitless about China's economy. After a currency devaluation in August, China's exports are returning to less steroidal figures and its yearly growth rate, which boosted some of the world’s other largest economies, seems destined for a significant correction. “The downside scenario for China seems more intimidating than ever before,” wrote the billionaire hedge-fund manager Dan Loeb in a recent investors’ letter, according to Bloomberg. John Burbank, the notable San Francisco investor, has cautioned of “a global downturn that leaves no region safe, including the United States.”

Predicting the bursting of a bubble isn't easy. They come in all shapes and sizes. But the fallacy is believing that one burst will resemble the one before it—that a series of weak I.P.O.s, for instance, will lead to reckoning of some sort. The last bubble occurred just as the Internet was beginning its rampant ascent. It also occurred before the real commencement of China's embrace of capitalism. This time around, chances are that the fallout will be far different than what we've seen before. And maybe a lot worse.